May 22, 2012 / 9:26 PM / 7 years ago

JPMorgan exec seen in field as US money-laundering cop

ST. LOUIS, May 22 (Thomson Reuters Accelus) - A JPMorgan executive and former Treasury Department official is considered by industry sources to be a top candidate to replace the dismissed head of the department’s anti-money laundering unit, at a time financial institutions face more demands from the fight against terrorism financing and drugs trafficking.

William Langford, who was a regulatory policy official at the department’s Financial Crimes Enforcement Network (FinCEN) before accepting an anti-money laundering post with JPMorgan in 2006, was identified by former Treasury officials as a likely choice to replace enforcement network head James Fries, Jr.

Freis was dismissed last week by Treasury Under Secretary for Terrorism and Financial Intelligence David Cohen after serving for five-years as the head of FinCEN.

Freis will keep his job until a replacement can be installed, a Treasury source familiar with the situation said.

Sources familiar with Freis’ tenure said that during the past year some senior Treasury Department officials began suggesting that FinCEN has moved too slowly to issue certain rules. These include rules to implement 2010 legislation isolating Iran from the global financial system and others regulating the prepaid payment cards, which are considered ripe for exploiting by money-launderers.

It is unclear why FinCEN was unable to move more quickly on both issues, although the complexity of the rules may have played a role. The Iran sanctions rules were finalized in October, 2011.

Frustrations boiled over late last year and some high-level Treasury officials began floating the idea of shifting FinCEN’s rulemaking authority back to Treasury headquarters, the sources said.

Treasury officials were also concerned that a “personality conflict” between Cohen and Freis might be hindering cooperation between FinCEN and Treasury’s Office of Terrorism and Financial Intelligence (TFI), a former Treasury official said.

Cohen inherited oversight of Freis and FinCEN in 2011 when he assumed the under secretary post.

Langford and Cohen worked together in Treasury’s Office of the General Counsel a decade ago, said Peter Djinis, a former regulatory policy official at FinCEN who is now in private practice in Florida.

Langford is a regular speaker at anti-money laundering conferences, where he is known for having an intimate knowledge of complex bank-security regulations, some of which he helped develop while at FinCEN. He also is well regarded for offering frank and open assessments of anti-money laundering issues. He did not immediately return a message seeking comment.

Treasury spokesman John Sullivan declined to discuss the situation, stating in an emailed statement that Treasury does not comment on “personnel issues.” Through FinCEN spokesman Steve Hudak, Freis also declined comment.

GROWING STRAIN

New leadership at FinCEN could help bridge a growing strain between authorities who demand financial intelligence and the institutions they demand it from, the industry sources said.

The fight against money-laundering has gained prominence as a principle tool for combating terrorism and narcotics trafficking, bolstered by legislation including the USA PATRIOT Act passed after the September 11, 2001 attacks.

Resulting regulations now require a broad array of financial institutions to devote considerable resources to helping the government shield the financial system from criminal activity. Firms that fall short are more likely than ever to face enforcement actions by regulators and/or the Justice Department.

“After 10 years of experience with the regulatory changes brought on by the PATRIOT Act, this is a good time to figure out what is working, what’s not working, and what could be improved. I’m hoping that a new director will be the impetus to start that dialogue,” Djinis said.

Financial institutions make millions of reports annually related to transactions that involve more than $10,000 in cash or suspicious activity. Djinis’ comments highlight a growing perception that law enforcement authorities use only a small fraction of the mountain of costly financial intelligence produced by the financial services sector each year.

“Today is a very challenging time for the financial services community. Many of the regional and smaller financial institutions still have not fully recovered from the economic crisis and are faced with increasing costs of AML compliance,” he said.

At the same time, law enforcement agencies are aggressively pursuing financial institutions they believe have fallen short of anti-money laundering requirements.

“FinCEN has historically acted as a buffer between law enforcement and the financial community in trying to ensure that compliance costs … result in information that is beneficial, and more importantly, is utilized by law enforcement,” Djinis said.

“Right now, any kind of a vacuum is not going to serve the interests of the financial-services community or the law enforcement community. It is critical Treasury quickly act to install a strong leader who can act to prioritize the interests of both groups and do everything that can be done to restore the balance,” he said.

In addition to issuing regulations, FinCEN, which was created in 1990, supports law enforcement agencies by analyzing and disseminating information submitted by financial institutions under the Bank Secrecy Act (BSA), such as reports of large cash transactions or those involving suspicious activity.

Its overarching goal is to ensure that authorities can follow criminals’ money trails and produce evidence that will help win convictions and recover crime proceeds.

Congress created the Office of Terrorism and Financial Intelligence in 2004 to better safeguard the U.S. financial system from a variety of threats - ranging from rogue regimes to drug kingpins - and granted it authority over FinCEN. Although the decades-old Treasury bureau continued to operate with a large degree of autonomy in the wake of TFI’s creation, in recent years TFI has “flexed its muscles” and pushed for greater control, sources said.

TFI’s rise could mean stiffer penalties for financial institutions that fail to comply with AML regulations, a former Treasury Department official said. He said TFI believes FinCEN has gone easy on financial institutions that failed to meet their crime-fighting obligations.

The source added, however, that if Langford, a well-respected and capable AML expert, were handed FinCEN’s reins, TFI might back off a bit and give him a chance to revamp the bureau.

(Edited by Randall Mikkelsen)

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete (here) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

Editing by Randall Mikkelsen and Tim Dobbyn

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